Hong Kong shares slumped 4.4 percent on Monday, underperforming much of Asia, as mainland financials and property names dragged the Hang Seng Index to its lowest level in 2-1/2 years, with lacklustre turnover and a flight to defensive stocks pointing to increased risk aversion.
Some foreign funds were seen liquidating long positions in anticipation of redemption pressures and fears of a hard landing in China after some brokerages last week warned of risks in the economy and the Chinese banking sector. The reports came as a global market rout deepened, prompting many investors to ditch riskier assets for the safety of cash, particularly US dollars. The Hang Seng Index lost 21.5 percent in the July-September period - its worst quarter in a decade.
"I'm not sure whether holding more positions is something to show your clients. Cash is pretty much king and has been for a few months now," said Benjamin Chang, chief executive officer of LBN Advisors, a firm that manages $450 million worth of assets in two China funds. "If you are an investor, you either want to see your manager aggressively betting on a recovery or cut positions. Merely holding onto positions now doesn't make sense at all," Chang added.
The Hang Seng Index finished at 16,822.2 points as turnover declined almost 15 percent from Friday. Most other Asian markets lost between 1.8 and 3 percent. The China Enterprise Index slumped 5.7 percent, due in part to losses for Ping An Insurance (Group) Co of China Ltd that topped 13 percent. The stock, which sank to its lowest in 2-1/2 years, has lost about half of its market value in the last quarter.
On September 26, Ping An recorded its biggest daily percentage plunge in more than three years - 13.7 percent - as it was hit by multiple rumours about HSBC selling down its stake and its exposure to the real estate trust business. On Monday, mainland property names also bled. China Resources Land and China Overseas Land & Investment each lost more than 11 percent.
Macau casino stocks plunged, with Galaxy Entertainment losing almost 19 percent, on fears that a heightened credit squeeze on private firms in China could hurt gambling revenues. Among the few stocks that rose on Monday were defensive plays, such as Power Assets, which gained 0.7 percent. It has gained nearly 23 percent in 2011 to date, compared to the 27 percent decline on the Hang Seng Index. The stock is trading at 13.9 times forward 12-month earnings, compared to a historical median of 11.5 times, according to Thomson Reuters Starmine.
Monday's slump sank the Hang Seng benchmark to a 2-1/2 year low, dipping below the 17,000 level. Near-term chart support is next seen between the April 2009 high at around 15,977 and the September 2008 low at around 16,283.
The 61.8 percent Fibonacci retracement of its rise from the lows October 2008 to its cyclical peak in November 2010, seen at around 16,148, is right in that range. Short-selling made up 14 percent of total turnover last Friday alone and is expected to hover at similarly high levels, if the US dollar maintains its strength against Asian currencies, analysts said.